Pinnacle Foods Inc. announced today it has entered into a definitive agreement to be acquired by Hillshire Brands. Pinnacle Foods is a New York Stock Exchange listed food manufacturing company, based in Parsipanny New Jersey. Hillshire Brands is also listed on the New York Stock Exchange.
Certain affiliates of the private equity firm, the Blackstone Group, hold 51.1% of the shares of Pinnacle – representing majority control. Blackstone has now entered into a voting agreement with Hillshire and, subject to its terms and conditions, has agreed to vote its shares in favour of the proposed transaction. The deal is expected to close by September 2014, and Hillshire has also agreed to appoint a representative from Blackstone to its own Board of Directors afterwards.
With approximately 117.3 million shares outstanding, at Friday’s closing price of US$30.24 per share Pinnacle was valued then, i.e. before today’s announcement, at about US$3.55 billion at a twelve months trailing P/E ratio of some 37 times earnings.
Today’s agreement with Hillshire also offers Pinnacle approximately a 21% premium over Friday’s share price. In total therefore the deal is worth about US$4.3 billion for Pinnacle’s equity.
The proposed deal is for a combination of cash and stock; it calls for payment by Hillshire to Pinnacle of US$18.00 in cash for each Pinnacle share, plus half a Hillshire share for each Pinnacle share as well. On Friday Hillshire’s own shares were trading at about US$37, so half a share was worth US18.50 then.
On that basis Hillshire would be paying a total of US$36.50 per share, for a total of just under US$4.3 billion. In pre-market trading this morning, and as of the time of writing, Pinnacle’s shares were changing hands at a little under US$37, i.e. just above the deal value, perhaps reflecting speculation as to where the Hillshire shares themselves may now trend on opening – they were also up a bit in pre-market trading.
Whilst the entry, twelve months trailing, P/E ratio for the purchase now rises to nearly 45 times earnings, pretty astronomical for a manufacturing business, Pinnacle’s outlook has been improving and substantially higher profits have been projected by analysts for the year ahead, even before this deal.
Pinnacle’s shares have also done very well since Blackstone took them public with an IPO in March of 2013, and even on Friday were already up 50% since. With today’s agreement they will now be showing a total positive return since the IPO of about 80% which is an excellent result for Blackstone and indeed for all Pinnacle’s shareholders. The deal will combine Pinnacle, which owns brands including Duncan Hines and Log Cabin syrup, with Hillshire, which has brands including Jimmy Dean and Sara Lee.
The combined company will have annual net revenues of approximately US$6.6 billion, and it will be led by current Hillshire President and CEO Sean Connolly. The transaction, which is subject to customary regulatory and shareholder approvals, is expected to close by September 2014.
Prakash A. Melwani, is a Blackstone Senior Manager Director and Chief Investment Officer, for Private Equity, and he said with the announcement “I want to thank the Pinnacle Foods Board of Directors, management team and employees for their tireless effort and dedication in transforming Pinnacle into the excellent Company it is today. All Pinnacle shareholders have benefited from the significant value created to date and now have the opportunity to participate in the strength of these combined businesses.”
Blackstone acquired Pinnacle originally in April, 2007 for US$2.2 billion and owned 98% of it until its IPO last year when they diluted down initially to 68% with shares for the IPO sold exclusively from treasury. Subsequent to the IPO they sold 20 million shares to take some money out, reducing to 51%, and with this transaction will become a significant shareholder in Hillshire instead after the deal closes.
BofA Merrill Lynch and Blackstone Advisory Partners served as financial advisors to Pinnacle for the transaction.